Individual, joint, traditional IRA, Roth IRA, and SEP IRA, inherited IRA, trust, checking, and savings
Betterment’s tax-coordinated portfolio adds a lot of value for taxable accounts.
Betterment estimates annual savings of 0.48% or 15% over 30 years.
Betterment offers free tax-loss harvesting and re-allocation/portfolio balancing.
Betterment will also rebalance your portfolio for you.
Savings Account/Cash Management
Cash management/cash reserve, high-yield savings account, and checking account offered
Live chat available. Also, representatives are available by phone 7 days a week until mid-late evening EST.
There is a special line for 401(k) customers, Plus, and Premium customers.
Available with Betterment Premium or for a one-time fee of $199 or $299 for Digital users
What is Betterment?
Betterment is a low-cost robo-advisor with tax-loss harvesting. Its automatic rebalancing and custom investment portfolios make it great for beginners. We’ll explore this product in our review. Does it still hold up? Read on to find out.
Jon Stein founded the company in 2008. Then in 2010, the company launched after a big debut at TechCrunch Disrupt NYC. Next, Betterment scored $3 million in funding and has enjoyed steady growth ever since. Stein still serves as Betterment’s CEO today.
The press has been kind to Betterment as well. For example, you’ve likely seen glowing reviews in the Wall Street Journal, Forbes, and CNN.
But Betterment’s investment portfolio results have proved that this is more than hype. Indeed, Betterment now has more than 500,000 users. Plus, Betterment manages over $22 billion.
Betterment is a top-notch robo-advisor. Investors use it to get advice on many different investment opportunities, including:
The platform allows you to create a Betterment portfolio that invests your money in low-cost funds. Betterment then does the rest. Also, Betterment uses fractional shares, which help you fully leverage your money.
Fractional shares allow you to buy small chunks of a share. Thus, you won’t have to wait until you can buy full shares.
And Betterment is not just a bunch of algorithms. Hence, it has a great reputation compared to its competitors, such as Wealthfront.
Sign up with Betterment. The signup process with Betterment is quick and easy. It will ask you a few questions about things like your income, time horizon, and risk tolerance. These help Betterment suggest financial goals for you.
Fund your new investment account. Once you get past the initial signup, you link your bank account so you can add money to Betterment.
Start investing with Betterment. And now, you’re ready to start investing. Based on your answers, Betterment will suggest a portfolio of ETFs. These will help you meet your investing goals.
Betterment enrolls new investors in an automated portfolio of stocks and bonds. For the Digital plan, you’ll pay an annual fee of 0.25% of assets under management and a 0.40% annual fee for Premium.
Betterment’s website then shows you how much you need for retirement planning. Thus, it makes it easy to stay on track.
Thanks to great goal tracking, you see how your Betterment account will grow over the years. And with automated deposits, you won’t have to manage a thing.
In fact, Betterment investing has several features that help your money grow:
The exact performance of Betterment will depend on your stock/bond allocation. But Betterment has data available on returns. For example, between 2004 and 2020, the average on Betterment with a 75/25 allocation was 8.2%. And Betterment points out that this was even with an average drawdown of 12%.
Overall, Betterment’s portfolio grew 172.9% between 2004 and 2020. And in 2013, the platform boasted 11% growth with a 70% mix.
At the same time, the S&P 500 yielded 174%. Thus, Betterment was a bit lower than the S&P, but not by much. And since Betterment invests in low-cost ETFs, you shouldn’t expect to beat the market.
Human investment managers often charge more than 1%. Still, they usually fail to beat the market. Betterment, on the other hand, has beaten the market 88% of the time since its start. It uses a portfolio of US and international stocks designed by experts.
Betterment has many unique features that set it apart from the competition. Hence, your portfolio will be secure and well-managed.
Betterment allows you to save and invest for a variety of different goals. They include:
Custom Asset Allocation
Your investment mix is based on the account type an investor has and risk tolerance. Therefore, Betterment will adjust your investments based on risk tolerance.
This feature is especially useful for investors with irregular income. You can set up deposits for when your bank account balance reaches a certain amount. Likewise, you can limit the amount you invest. Above all, the best thing about SmartDeposit is how easy it is to set up.
External Account Linking
You can link your Betterment account to services like Personal Capital. And you can do this without compromising the security of your investment account.
Financial Advisor Access
If you sign up for Betterment, you can send a message to a financial expert using the Betterment app. Thus, it’s a great way to get answers to any of your questions.
Betterment also supports charitable giving allows users to donate some of their shares. Plus, giving to charities helps investors avoid tax liability.
If you have $100,000 in your Betterment account, you will have the Flexible Portfolio feature. It allows you to adjust the asset class weights within your portfolio. This feature works much like investment pies work in M1 Finance. The main difference is that with Betterment, you only work with a set of ETFs. With M1, you can add individual stocks or ETFs.
This feature allocates assets based on the tax efficiency of your taxable accounts.
Betterment Tax-Loss Harvesting
Tax-loss harvesting is a feature most robo-advisors fail to offer. As your portfolio grows, you will need to worry about your gains becoming affected by taxes, especially when selling investments held for less than 365 days.
Rather than signing up with a traditional brokerage, investors with more extensive portfolios can take advantage of Betterment tax-loss harvesting.
Betterment does its best to ensure your gains are only ever taxed at the long-term capital gains rate of 20%, rather than the short-term capital gains rate of 37%. The platform doesn’t just stop there, either.
Betterment provides specialized guidance on how to offset your taxable gains through other intelligent tax strategies. Although it requires some additional effort on your behalf when filing your taxes, Betterment’s guide can save you thousands of dollars in taxes. As always, speak to your accountant to make sure any tax avoidance strategies pertain to your financial situation.
For example, Betterment may suggest using your gains as a charitable donation or giving a relative a portion of it as a gift.
Financial advice often costs thousands of dollars when obtained from a financial advisor. Betterment investing acts on your behalf to limit your tax exposure. There’s nothing to opt into, and there are no hidden charges involved in activating this service.
There is no minimum balance for the Betterment Digital plan. But the Premium plan has a $100,000 minimum balance.
Investors can get unlimited access to investment advisors by phone and email with this service. That makes it excellent for financial planning. But it’s worth noting that the Premium plan has a minimum account balance of $100,000.
On the whole, there is an impressive range of low fees all round for all Betterment services.
Portfolio and Allocation
Betterment’s portfolio choices include:
Betterment Core portfolio. The standard Betterment portfolio; invests in a broad set of ETFs.
Goldman Sachs Smart Beta. Specialized portfolio with a goal of beating the market using Goldman Sachs ETFs.
Socially responsible portfolios. Betterment has three socially responsible portfolios: Broad Impact, Climate Impact, and Social Impact. The latter two focus on specific social initiatives, while Broad Impact looks to invest responsibly across the board.
BlackRock Target Income. The Target Income portfolio consists only of bonds, putting the focus on stability.
Flexible portfolios. With this option, Betterment gives you more control. You can adjust the exact allocation of its various ETFs. That said, it gives you feedback and suggestions to improve your returns.
Betterment offers users a strong selection of individual stocks and bonds. Whether you use Digital or Premium, you gain access to the same set of 14 different ETFs. As a result, users see great historical performance and affordability in a Betterment investment account.
The user selects their own stock/bond allocation. For example, you might have a portfolio of 80 percent stocks and 20 percent bonds. Since bonds are generally safer investments, they reduce volatility. Conversely, stocks are more volatile but can experience higher growth.
According to NASA, the average global temperature has risen about 2.12 degrees Fahrenheit since the late 19th century. And investors are taking notice of this issue. Thus, the Climate Impact portfolio focuses on mitigating climate change.
In particular, it invests in three areas:
The companies with the lowest carbon footprints in each sector
Funds that actively exclude companies with fossil fuel reserves
Green bonds, which invest in alternative energy, pollution control, and climate adaptation
Specifically, the portfolio invests half of its assets in the iShares MSCI ACWI Low Carbon Target ETF (CRBN). It’s worth noting that low carbon does not mean carbon-free.
CRBN scores a C grade on Fossil Free Funds and has almost $23 million invested in fossil fuels. That said, the fund also has almost $485M in assets. That’s less than half a percent of its equity in fossil fuels.
And that’s better than other popular funds such as VTSAX. Indeed, this fund has about 6% of its equity in fossil fuels. Still, I would have liked to see a better score for climate impact.
The rest of the portfolio is invested in SPYX, EFAX, and EEMX. SPYX also scores a C on Fossil Free Funds. On the other hand, the other two score a bit better with a B grade.
Social Impact Portfolio
The Social Impact portfolio invests in US companies that value diversity. This includes funds such as the NACP ETF and the SHE ETF.
These funds give exposure to organizations that value ethnic, racial, and gender diversity.
BlackRock Target Income Portfolio
This is a new portfolio option at Betterment. Still, it’s an ideal solution for anyone who is looking for low-risk investments.
To illustrate, the entire portfolio focuses on bonds that provide a low level of risk.
Goldman Sachs Smart Beta Portfolio
Goldman Sachs Smart Beta is another portfolio that is a recent addition to Betterment. Betterment added this portfolio to compete with Schwab and others, but it can also improve returns.
Betterment has a wide variety of account types:
Individual taxable accounts
Joint taxable accounts
Traditional IRA, Roth IRA, and SEP IRA
High-yield savings accounts
Betterment also supports 401(k) rollovers. Thus, you can roll an old 401(k) into a Betterment IRA. You also have the option to link external investment accounts to help track your financial goals.
Betterment Retirement Accounts
An individual retirement account (IRA) is a great tool when saving for retirement. These tax-advantaged accounts help you save on taxes and lower your taxable income. You can use Betterment’s retirement calculator to find out how much you need to meet your goals. As a result, you’ll be able to choose the right retirement account.
Which one is best depends on your tax deference preferences and retirement goals. Either way, Betterment’s visualization tools make it easy to see the advantages of each tax model. Also, users can start taxable accounts, 401(k), trust accounts, and 529 plans for college planning.
Betterment Financial Advice Packages
Betterment includes unlimited access to human advisors with its Premium plan. But if you don’t to pay the higher fees for Premium (or don’t meet the minimum investment), you can buy a standalone investment advice package.
These packages allow you to get help from human financial advisors. That includes advice from a licensed financial expert or certified financial planner. And if you have complex finances, that can be especially helpful. For $199, you can book a 45-minute call with a human advisor.
Then, if you want a call that is more tailored to your needs, you can book one of four 60-minute calls. These calls cost $299 and let you meet with a human advisor about:
Having access to human advisors can be very helpful to some and make it worth the added fee.
Betterment Cash Reserve and Checking Account
The Betterment Cash Reserve account replaces the previous Smart Saver option. The new account is a cash management account called the Cash Reserve account. The Cash Reserve account allows you to do your daily spending and you can easily transfer money to your Betterment investment account.
The new high-yield savings account has an interest rate of up to 0.40% APY. Hence, it’s a good savings account to which you can link to your investments. Additionally, there are no fees to pay.
Betterment Checking users have access to the following:
Betterment checking accounts
Visa debit cards
The Betterment checking account also has some nice features. For example, Betterment will reimburse all ATM fees when you use your debit card. That means both foreign and domestic. Plus, deposits are FDIC-insured.
It also eliminated overdraft fees, transaction fees, and minimum balances. What’s left? A no-nonsense checking account.
New User Promotions
Betterment’s new user promotion waives the service fee for up to 12 months for new accounts. Plus, there are extra perks for those who refer people.
The discount you receive depends on your portfolio balance in the first 45 days:
Here, we’ll take a look at how Betterment compares to its various competitors. In particular, we’ll compare it to Vanguard and Robinhood.
Betterment vs. Vanguard
Vanguard can sell you the same portfolio as Betterment for a slightly lower annual fee. But only if you are willing to do a lot more work on your own. And in most cases, the cost difference is very slight.
At Vanguard, you’ll also have to do the following on your own:
These perks more than cover the cost of your Betterment fees. So if you’re wondering, “is Betterment Better than Vanguard?” the answer is it depends. Although Betterment comes with fees, you can a lot of value for them.
Betterment and Robinhood both have a lot to offer, but the target market is quite different. We’ll find out why in this quick comparison.
Betterment is great for those who want a hands-off approach to investing. Once you determine your stock/bond, all you have to do is add money to your portfolio.
Then, the platform takes over. And since it has rebalancing and tax-loss harvesting, it is a set-it-and-forget-it service. Of course, you do pay a fee for that convenience. The same is true if you want access to human advisors, which Betterment offers for a fee. Hence, Betterment is the preferred choice for financial planning.
Robinhood is quite different. Because the app is a commission-free trading platform, it allows you to trade many different assets.
Specifically, you can use Robinhood to trade stocks, bonds, ETFs, and options. And you can even trade cryptocurrency with this app. There are no commissions for any of these trades, and there is no membership fee.
What you don’t get with Robinhood is dynamic rebalancing or tax-loss harvesting. That’s because it’s more of a DIY solution.
However, the lack of commissions makes Robinhood good for active traders. Hence, day traders find this app useful.
What Are People Saying About Betterment?
Yes, we are fans of Betterment, but we aren’t the only ones. For instance, here are a few highlights of Betterment’s ratings from different platforms:
Apple Store: Betterment has a 4.8/5 with over 28,000 ratings.
Google Play: Betterment scores 4.6/5 stars with over 5,600 ratings.
Consumer Affairs: Betterment scores four stars with 240 ratings.
And what do people have to say about Betterment, exactly? Here are a couple of verified reviews from real people:
“I absolutely love Betterment and the automatic investing services they provide at a very low fee. Their website is extremely user friendly and you can make changes or withdraw your money at any time. … I am a CPA and I have never seen anything that would make me think they are not trustworthy.” –Jeffrey of Bartow, FL
Betterment Review: Conclusion
Betterment is a robo-advisor that simplifies investing. It does this with flexible portfolios, high yield savings, and more. And if you set up automatic deposits, investing can be fully automated. There is no account minimum and no monthly fees.
To sum up, Betterment is great for financial planning and investment strategies. Indeed, investors and personal finance enthusiasts can appreciate how easy they make it.
Hence, new investors are signing up by the thousands. With no minimums and low fees, it makes sense. Indeed, you can even use your debit card anywhere and never pay ATM fees. And the Betterment Cash Reserve account makes things even easier.
We love how responsive Betterment is to user feedback and how quickly they respond to our emails. Plus, they’ve added so many useful features and improvements in a short time.
We only expect Betterment to get better. Even now, they’re a true leader in the robo-advisor and modern investment landscape.
It’s time to take a look at what Betterment has to offer in more detail.
Too busy to read the full review? Here are some answers to your deepest burning questions about Betterment.
Betterment is worth using for newer investors. And if you don’t have a lot of time to manage your portfolio, you will appreciate that it lets you automate your investments. Plus, it now has a feature that automatically adjusts your risk tolerance as you move closer to retirement.
With all these features and access to financial advisors, Betterment is worth using for many investors.
Betterment is ideal for beginners because it guides you through the process starting with a questionnaire. Then, it suggests a portfolio of ETFs. If you are satisfied with Betterment’s suggestions, you can start investing right away. And if you automate your deposits, Betterment requires little to no maintenance from you.
Betterment has an excellent customer service record. And, if needed, you can get help from certified financial planners (CFPs). Plus, Betterment Premium customers get unlimited access to certified financial planners. If you need the help of a financial advisor, it’s a great option.
Betterment is also perfect for new investors. Why? Because it helps cut hours of research. Hence, Betterment remains the best-known robo-advisor on the market.
Indeed, investors love Betterment because of its tax advantages. Chief among them is tax-loss harvesting. After all, investing in a tax-optimized way helps your money grow faster.
So, now is a good time to sign up with Betterment as you’ll get up to 12 months free.
Yes, Betterment can be trusted and is completely safe. The company has been around for more than a decade and is regulated and its users are SIPC-insured. Betterment Checking is FDIC-insured up to $250,000. Plus, it has great scam/fraud protection and encryption.
A Betterment investment account works well for many people. To illustrate, it invests your money in a diverse portfolio of 14 different asset classes.
This allows it to have strong long-term performance. And it does that with a low management fee of 0.25% for Digital members. Plus, you can consult a financial advisor at any time.
Yes, you can make money with Betterment.
Betterment invests your money in the stock market, which can be volatile. But Betterment can make you money, too. Betterment has beaten the market 88% of the time and had a cumulative return of 172% between 2004 and 2020.
Your portfolio allocation plays a role as well. For example, aggressive investment portfolios will be hit harder during bear markets.
Betterment has a tool on its website that lets you see past returns using real Betterment data. This past year, an aggressive portfolio would have outperformed a conservative one.
For instance, from June 2019 to June 2020, a Betterment portfolio of 60% bonds and 40% stocks would have had a +2.3% return. In contrast, a portfolio of 100% stocks would have had a –2.7% return.
Yes, you can take your money out of Betterment at any time. Betterment doesn’t charge any fees when you do so, and it usually takes 4-5 business days to withdraw money from Betterment.
Yet, you may be responsible for capital gains when the money comes out. Note that money invested for more than a year is subject to long-term capital gains. These taxes are lower than short-term capital gains taxes.
The only exception to this is if you have a tax-advantaged account in Betterment, such as an IRA. But money withdrawn from a traditional IRA before age 59 & 1/2 is subject to a 10% penalty.
If you have a Betterment Roth IRA, you can withdraw contributions at any time with no penalty. But if you withdraw earnings on your Roth IRA before age 59 &1/2, you may be subject to taxes and penalties.
Bob Haegele is a personal finance writer, entrepreneur, and dog walker. Bob has been writing about personal finance for three years and now manages several personal finance sites, including The Frugal Fellow, Modest Money, and Blooming Wealth. You can also find him contributing to popular websites such as Yahoo! Finance, MSN Money, and GOBankingRates. You can see more of his work on Muck Rack and Contently, or connect with him on LinkedIn.
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